Asia is sitting on $2.6 trillion of U.S. Treasuries, at a
time when one of the official arbiters of creditworthiness has
just delivered a vote of reduced confidence. S&P said as much
last week when it cut the U.S.’s sovereign rating to AA+. That’s
what happens when politicians in Washington act more like
stewards of a developing economy than a world leader.

Reassurances by U.S. Treasury Secretary Geithner are small
comfort as Asian nations consider how to move beyond export-
driven development models that compel them to buy Treasuries
with their accumulated dollars. It’s time for Asia to figure out
how to get beyond this trade, which locks it into soaking up ever
more U.S. debt to keep their own currencies artificially weak.
Here are 10 things Asian leaders need to think about as they try
to get to the end of 2011 with their economies intact.

No. 1: Weathering a AAA crisis. S&P’s move is another
acknowledgment that the U.S. is on the path of long-term decline
unless it can reverse course. Yet the dollar is, for better or
worse, the linchpin of our global system. Expect an adjustment
process that might see other countries tossed out of the AAA
club. That will unnerve investors still smarting from the
meltdown of 2008. It forces Asia to confront a remarkable
balancing act -- figuring out how to reduce dollar holdings
without undermining markets and driving down the value of their
own investments.

No. 2: Double-dip recession. The recent debt-ceiling deal
in Washington begins siphoning money out of the U.S. economy at
a time when fiscal and monetary stimulus efforts are winding
down. Europe, meanwhile, is wrestling with a debt crisis that
seems to be spreading from the periphery to the core. Asia
proved that it can grow without much help from U.S. and European
consumers for two or three years. What about four or five? Asia
may have to adjust to life with slower growth.

No. 3: The money glut. We live in a world of zero, in which
the Federal Reserve, Bank of Japan and European Central Bank are
all essentially offering free money. Expect even more liquidity
from the Fed, especially if unemployment rises. Economies from
Thailand to South Korea worried about hot-money flows and asset
bubbles a year ago haven’t seen anything yet.

No. 4: Europe’s meltdown. The U.S. is a sideshow compared
with the euro zone. A Greek default seems unavoidable, and so
are worsening conditions in Ireland, Portugal and Spain. Yet
what should really scare markets is the specter of an Italian
crash. German citizens are being told these economies are too
big to fail and that their savings are needed to fund bailouts.
Italy might be too big to save. What if Germans grow tired of
bailing out Europe’s weak links and demand a return to the
deutsche mark?

No. 5: Deflation, not inflation. Weakening global demand
buttresses the view that consumer prices from the U.S. to
Singapore will fall. The counterpoint is that liquidity provided
by Washington, Tokyo and Frankfurt will make inflation the real
risk. Inflation hawks point to gold trading about $1,700 an
ounce to support their views. I side with the deflation
scenario. Slack demand is the bigger problem.

No. 6: IPO bust. Even before the U.S. downgrade, shares of
Blackstone Group LP and KKR & Co. were sliding on concern that
market turmoil would hinder the buyout firms’ ability to sell
shares in the companies they control. Asia has been an obvious
initial public offering bright spot in recent years. Expect
fewer of them. That means less money for expansion, research,
hiring, wage growth and wealth creation.

No. 7: Chinese overheating. At the core of Asia’s
impressive post-Lehman-Brothers performance has been China’s 10
percent growth. China needs it to placate the masses and keep
the Communist Party in business. That risks domestic inflation
that might roar out of control. Trouble in China is among the
last things Asia, or the rest of the world, needs.

No. 8: Out of the blue. The unthinkable has an uncanny
knack of happening. The list of events that could devastate
markets include a Japanese bond-market crash, the “Arab
Spring” sweeps through Beijing, an over-the-top provocation
from North Korean leader Kim Jong Il, terrorist attacks and
firefights in the South China Sea.

No. 9: Cooperation deficit. Asia puts on a great show of
working together with countless summits, communiqués and
conference calls. In reality, nations are becoming more inward
looking and insular, not only in Asia but globally. It calls
into question the whole idea of globalization. If ever there
were a time for policy collaboration, it’s now.

No. 10: Leadership void. The world economy has rarely been
in greater need of credible, savvy and forward-looking policies.
Look around the globe. You won’t find them in Brussels, Tokyo or
Washington. Not Beijing either. If we are heading into Global
Financial Crisis 2.0, today’s crop of leaders and policy makers
sure make me wonder if they are up to the challenge.

(William Pesek is a Bloomberg View columnist. The opinions
expressed are his own.)